The Internal Revenue Service is cranking up its number of taxpayer audits, thanks to an $80 billion infusion from the Inflation Reduction Act, or IRA, which was signed into law in August 2022. But not all taxpayers will be affected equally.
By 2026, with the audit changes fully in place, the IRS expects to have increased the 2019 audit rate by at least 50% for individuals with incomes of $10 million or more. In addition, audit rates for corporations with more than $250 million in assets will almost triple, while those for complex partnerships with assets greater than $10 million will multiply tenfold.
Meanwhile, “the agency will not increase audit rates for small businesses and taxpayers making under $400,000, and those rates remain at historically low levels,” the IRS said in a news release.
Featured Partner Offers
1
TurboTax Deluxe
$69
$64
2
TaxSlayer Premium
$57.95
$44.95
3
Cash App Taxes
$0
$0
Why Are More People Being Audited?
The rise in audits is part of the agency’s crackdown on wealthy individuals and businesses that shelter or distort their income to avoid taxes.
“The IRS is now taking swift and aggressive action to improve tax compliance in areas where the agency did not have adequate resources prior to IRA funding,” the agency said in its 2024 Strategic Operating Plan annual update.
The agency said it’s also using IRA money for research into how race, ethnicity, age, gender and geography affect a taxpayer’s chance of being audited. A 2023 study by Treasury Department and university researchers found that Black taxpayers were three to five times more likely to be audited than other taxpayers.
IRS Increasing Taxpayer Services
The IRS is also using IRA funds to upgrade technology and taxpayer services, improve its workforce and “develop a culture that is better equipped to deliver results for taxpayers,” the agency said.
For example, during the just-ended 2024 filing season, IRS workers handled 1 million more calls than last year while maintaining an average wait time of three minutes. And more than 140,000 taxpayers filed their returns online for free using the newly launched Direct File program, the agency noted.
“We need to continue working to make more improvements in taxpayer service, modernize technology and ensure those with complex returns, including certain high-income individuals, large corporations and complex partnerships, pay the taxes they owe,” IRS Commissioner Danny Werfel said in a statement.
Do You Need To Worry About an Audit?
Your chances of being audited remain low, especially if your household income is below $400,000 a year. A Syracuse University analysis shows that of the 164 million individual tax returns filed in 2022, about 626,000 were audited—a rate of 0.38%.
If you used one of the best tax software options to prepare your return, your agreement with the company may include audit protection or support. In some cases, tax pros are available to answer your audit questions and advise you on how to proceed.
Be sure to hold on to your receipts and other tax records. The IRS statute of limitations for audits is three years. But experts say it’s wise to keep tax records for at least seven years. That way, you’ll have the information you need if you do face an audit.
One thing you will not need to worry about is an IRS agent showing up at your door without warning. The IRS said last year that it is ending unannounced visits by revenue agents, except in rare circumstances.
Compare the best tax software of 2024
